If you sign an employment contract and fail to perform as per the terms thereon, you’ll have breached that contract. The consequence of a contract breach is personal liability.
Personal liability for a breach of contract can be avoided by amending the terms of your contract. However, the employee must be involved. Most employers involve an employment lawyer in Toronto since Canadian employment law can be complex.
Steps to Amending a Signed Employment Contract in Canada
Specific steps should be followed when amending an employment contract in Canada. You don’t just wake up one day and alter the terms of your employees’ contracts without their consent. Here is how to amend an employment contract:
1. Review the Employment Contract
As an employer, your first action should be to determine the part of the contract that should be amended. Employers may review and amend different terms in the contract document. For instance, you can adjust:
- The duration of engagement;
- The role of the employee, and
- Other terms of engagement, such as remuneration.
Illustration
An employee signed a five-year employment contract with a basic pay of $500,000 yearly. You want to reduce the contract by two years. In this case, you should schedule a meeting with the affected employee and state your intentions and deliberate on the same. Otherwise, you’ll have violated their rights if you change the terms of engagement without their consent.
2. Deliberate on the Terms of the New Contract
An employment contract should have an offer, acceptance, and consideration unless the contract involves the sale of goods. Legally, a new consideration must be offered and accepted by an employee before the amendment.
Consideration refers to a bargained-for exchange and should have a legal value according to Contract law. In the illustration above, consideration is the remuneration for work done by your employee. The new consideration would be the employee’s agreement to work for two years instead of five.
3. Engage the Affected Employee
Any contract cannot be amended without the participation of all the parties involved. In other words, you need the express permission of your employee before amending their contract. If they do not accept your offer or recommendations, you can’t coerce them; sweeten the deal.
For instance, you could offer an annual salary of $570,000 to the employee—an annual increment of $70,000 to the original contract. Keeping the lines of communication for negotiation allows both parties to reach an agreement. Things may not always go your way; you may have to forego something in exchange for something else.
4. Amend the Original Contract
A new contract with the amended terms should be drafted once the employee accepts your offer. The parties to the amended contract should then append their signatures on the new contract to make it enforceable.
5. Make Copies of the New Contract
Both employers and employees should retain a copy of the new contract. The signatures provide evidence that both parties to the contract agreed to the amendments or the new terms.
What If the Company is Sold?
Is an employment contract binding if the company is sold? The terms of your contract determine if it’s binding after the sale of the company.
The continuation of your contract will depend on whether it includes a survival or assignment clause. The clauses dictate the operability of the contract if the company changes hands.
Employment contracts define the specific terms of an employment relationship, such as:
- Health care benefits;
- Job responsibilities;
- Bonuses;
- Confidentiality policies;
- Non-compete restrictions, and more.
If you sign a contract and the company is sold, your contract will no longer be binding because one of the parties (original employer) no longer exists.
Fortunately, most employment contracts address what happens to a contract in the event of mergers, buyouts, or other changes of circumstances. Simply put, an employment contract may include specific provisions related to changes in circumstances.
Survival Clauses
A survival clause contains covenants on how your employment contract will be handled if the company changes hands. Such clauses restrict employees from pursuing a wrongful termination claim against the new management.
Assignment Clauses
Assignment clauses allow contracts to be assigned to third parties, such as the new management. Contract assignment means that a new or existing employee assumes all duties, rights, and obligations under the transferred or new contract.
On the other hand, a non-assignment clause limits the employee’s right to assume duties, rights, and obligations under the new contract. Prospective employees should carefully review their contracts to know if it includes an assignment or non-assignment clause.
Renegotiation
Employees should renegotiate their contracts if their contracts are nullified by the sale of a company, where the contract is not assignable. Fortunately, most prospective investors often retain top talent, so you can negotiate better terms, including beneficial survival clauses and assignment clauses in your new contract.
The parties to a contract must be involved during employment contract amendment. Although amending the contract can be complex, an employment lawyer can help.
